Definition
The Transferable Nil-Rate Band (TNRB) allows married couples and civil partners to combine their £325,000 inheritance tax allowances, potentially passing up to £650,000 to beneficiaries tax-free.
Understanding TNRB is crucial for couples planning their estates, as it can save beneficiaries up to £130,000 in inheritance tax without complex trust structures.
What Does Transferable Nil-Rate Band Mean?
Introduced by the Finance Act 2008 and effective from 9 October 2007, the Transferable Nil-Rate Band is governed by sections 8A-8C of the Inheritance Tax Act 1984. The legislation transfers the unused percentage—not a fixed amount—of the first spouse's nil-rate band to the surviving partner. Currently, the nil-rate band stands at £325,000, frozen until April 2030 by Finance Act 2023. When the first spouse leaves their estate to their surviving partner under spouse exemption (which makes gifts between spouses inheritance tax-free), their nil-rate band remains unused and can transfer to the survivor.
The calculation works on a percentage basis. If the first spouse used 0% of their nil-rate band by leaving everything to their partner, 100% transfers to the survivor. If they left £130,000 to children and the rest to their spouse, they used 40% of their allowance (£130,000 ÷ £325,000), so 60% transfers—adding £195,000 to the survivor's allowance. Robert died in 2018 leaving his entire £420,000 estate to his wife Margaret. He used 0% of his nil-rate band, so when Margaret died in 2025 with an estate worth £580,000, her executors claimed Robert's unused 100%. Margaret's estate had a combined allowance of £650,000, meaning their daughters inherited everything tax-free, saving the family £102,000 in inheritance tax.
The transfer isn't automatic. Executors must actively claim TNRB by completing form IHT402 and submitting it to HMRC within 24 months of the end of the month of the second death. The law applies retrospectively—even if the first death occurred before October 2007, the transfer can still be claimed when the second spouse dies after that date. The percentage-based system means if the nil-rate band increases in future, the transferred amount increases proportionally. TNRB works alongside the Residence Nil-Rate Band, potentially giving couples up to £1 million in combined tax-free allowances when both reliefs apply.
If widowed more than once, you can claim unused nil-rate band from multiple deceased spouses, but the maximum transfer is capped at 100% of one additional nil-rate band. Patricia was widowed twice. Her first husband used 0% of his allowance, her second used 25%. Her executors could claim 100% + 75% = 175% potentially, but the law caps the transfer at 100%, giving Patricia a maximum combined allowance of £650,000 regardless of multiple marriages.
Common Questions
"Do I automatically get my late spouse's inheritance tax allowance?" No, the transfer isn't automatic. When you die, your executors must claim the unused portion of your late spouse's nil-rate band by completing form IHT402 within 24 months of the end of the month of your death. Without this claim, the additional allowance is lost.
"My husband died 20 years ago before this law existed—can I still benefit?" Yes, the law applies retrospectively. It doesn't matter when your husband died, even decades before 2007. What matters is your death occurs after 9 October 2007. Your executors can claim the unused percentage of his nil-rate band, potentially giving you up to £650,000 tax-free.
"If I remarry after being widowed, do I lose my first spouse's unused allowance?" No, you don't lose it by remarrying. If widowed more than once, your executors can claim unused nil-rate band from multiple deceased spouses. However, the total transfer is capped at 100% of one additional nil-rate band (£325,000), so your maximum combined allowance is £650,000.
Common Misconceptions
Myth: The transferable nil-rate band means I automatically inherit my spouse's £325,000 allowance.
Reality: The transfer is based on the unused percentage, not a fixed £325,000. If your spouse left £100,000 to children and the rest to you, they used roughly 31% of their nil-rate band. You would only get 69% of £325,000 (about £224,000) added to your allowance. Additionally, executors must actively claim the transfer—it doesn't happen automatically.
Myth: I need to do something now while my spouse is alive to secure the transferable nil-rate band.
Reality: You don't need to take action while your spouse is alive. The transfer is claimed by your executors after both spouses have died. The only requirement is that when the first spouse dies, they leave at least some of their estate to the surviving spouse (triggering spouse exemption), which preserves some percentage of their nil-rate band unused.
Related Terms
Understanding Transferable Nil-Rate Band connects to these related concepts:
- Nil-Rate Band: The foundational £325,000 inheritance tax-free threshold that TNRB builds upon by transferring the unused portion.
- Residence Nil-Rate Band: A complementary relief also transferable between spouses, working alongside TNRB to potentially reach £1 million tax-free.
- Spouse Exemption: The prerequisite condition where gifts to spouses are IHT-exempt, creating the unused nil-rate band that transfers.
- Inheritance Tax: The 40% tax on death estates that TNRB helps avoid by doubling the tax-free threshold for couples.
- IHT Planning: The strategic application of TNRB as a key tool in modern inheritance tax planning, often replacing older trust-based approaches.
Related Articles
- Understanding UK Inheritance Tax Thresholds: Explains the nil-rate band foundation that TNRB builds upon, helping you understand why doubling to £650,000 is so valuable.
- Inheritance Tax Planning for Married Couples: Shows how TNRB fits into comprehensive estate planning strategies alongside spouse exemption and residence nil-rate band.
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Legal Disclaimer: This glossary entry provides general information about UK legal terminology and does not constitute legal advice. For advice specific to your situation, consult a qualified solicitor.